The two major publicly-traded nutrition plays — BellRing Brands and Simply Good Foods — have been two of the better stocks in the food sector over the past five years. BellRing, in fact, has likely been the best stock, at least among major players: shares have returned more than 300% since the company went public in November 2019. Simply Good Foods hasn’t been quite as strong, but total returns of 68% over five years (about 11% per year) are better than most industry benchmarks.
What’s interesting about the relative outperformance is that both businesses have struggled with their best-known brands. BellRing Brands, the former Active Nutrition business of Post Holdings, inherited PowerBar, which essentially created the energy bar category. Post acquired the business for $131.6 million in 2014; last year, BellRing discontinued the product in North America.
Meanwhile, Simply Good Foods has its roots in the well-known Atkins product line; when the company went public in 2017, Atkins accounted for about 98% of the company’s sales. Atkins has grown since then, but the brand may have peaked. Sales dropped nearly 3% in fiscal 2023 (ending September) and are down a concerning 9% in the first half of fiscal 2024. Simply Good cut its full-year revenue guidance as a result; the Atkins business is now below sales levels from fiscal 2019.
Key Acquisitions
Despite struggles in the brands consumers might know best, both businesses have thrived through smart acquisitions of brands that consumers are still paying up for. For Simply Good Foods, it was the 2019 purchase of Quest Nutrition. Quest sales have more than doubled since fiscal 2020, and the strength in that unit is keeping SMPL stock afloat amid the declines of Atkins.
BellRing, meanwhile, has its base in Premier Nutrition, which Post acquired in 2013. As we noted in February, when highlighting the impressive long-term returns in Post stock, Post paid just $180 million for Premier. It’s one of the best acquisitions in the history of the food industry: Premier now is probably worth at least $7 billion. The brand generates more than 80% of revenue for BellRing, which has an enterprise value (the market capitalization of its stock plus the face value of its debt less cash) of about $8.4 billion.
Of course, both companies have benefited from being in one of the hottest categories in the industry. After years of growing north of 10%, Simply Good Foods CEO Geoff Tanner said at a conference this month that nutritional snacking was increasing “mid-single digits”. (BellRing executives have given similar commentary.)
Younger customers are driving much of the growth, as nutrition bars and shakes have expanded beyond an original base of “gym rats.”
Promising Outlook
Leaders of both companies expect that growth to continue. Tanner argued the category could double in 5-6 years, and Quest’s expansion into chips, iced coffee, and even baked goods like brownies should help. So should another acquisition: last month, SGF announced it would pay $280 million for Only What You Need, a maker of plant-based protein shakes.
BellRing has pointed to still-low household penetration, and cited data that shows much of the category’s growth has come from customers trying nutritional snacks for the first time and then becoming repeat buyers. The rise of GLP-1 drugs may provide yet another tailwind, with nutritional snacks well-suited for customers with smaller appetites and a greater focus on health.
In that context, it’s hardly surprising that both stocks have performed well. And there’s reason to think that outperformance will continue: the active nutrition category simply seems stronger than most other areas of packaged foods. Premier’s leadership in the club channel, and the reach of Quest for SGF, provide significant competitive advantages should other companies try to take advantage of that growth.
The irony is that the weakness of the two companies’ most familiar brands in fact highlights why the opportunity is so large. Powerbar and Atkins are struggling because they are old products in an industry that has seen dramatic change in its offerings and in its customers. It’s the newer brands that are giving customers what they want – and are creating even more customers in the process. As long as that continues, BellRing and Simply Good Foods should continue to be winners.
Vince Martin is an analyst and author whose work has appeared on multiple financial industry websites. He’s the lead writer at Overlooked Alpha, which offers market-wide and single-stock analysis every week.
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